How Board-Designated Assets Can Help Nonprofits Weather Financial Challenges
Posted by Robert Torella on August 06, 2025
In times of financial uncertainty, nonprofit organizations often face tough decisions about how to maintain operations and fulfill their mission. While donor-restricted funds are off-limits for anything outside their intended purpose, board-designated assets offer a valuable source of flexibility that many nonprofits may overlook.
What Are Board-Designated Assets?
Board-designated assets, sometimes called board-designated funds, are unrestricted funds that a board or leadership team has set aside for a specific purpose or specified time-period. Unlike donor-restricted funds, these designations are self-imposed, meaning the board can later vote to remove or change them if circumstances require.
These funds are often earmarked to:
- Support future programs or projects,
- Serve as internal lines of credit,
- Maintain liquidity or operational reserves,
- Contribute to an endowment.
Having a clear policy around board-designated assets helps ensure transparency and accountability, especially when financial pressures mount.
Why Designate Funds?
Designating assets can serve multiple strategic purposes:
- Planning ahead: Funds can be reserved for anticipated needs or contingencies.
- Demonstrating commitment: Designations can show donors and stakeholders that your organization is serious about a particular initiative.
- Improving cash flow: Internal reserves can help bridge gaps without dipping into emergency funds or endowments.
In some cases, the board may delegate the authority to designate funds to a trusted executive, such as the CFO. If so, this delegation should be formally documented and reviewed regularly.
Financial Reporting Matters
For nonprofits following U.S. Generally Accepted Accounting Principles (GAAP), board-designated net assets must be disclosed in financial statements or accompanying notes. Proper documentation makes compliance easier and strengthens your organization’s financial integrity.
Establishing a Policy
If your board is considering designating assets, it’s essential to adopt formal policies and procedures. A strong policy should:
- Define the objectives for designated funds,
- Outline how funds will be monitored and tracked,
- Specify whether designated funds will be segregated,
- Detail procedures for removing designations, including formal board votes and documentation.
When to Reconsider Designations
Sometimes, the best move is to remove a designation, especially if your organization is facing budget shortfalls or unexpected expenses. Board-designated funds can be a more appropriate source of relief than tapping into endowments or emergency reserves.
If your board decides to lift a designation, make sure to:
- Hold a formal vote,
- Document the decision in meeting minutes,
- Reflect the change in your financial statements.
Need Guidance?
Navigating financial decisions during uncertain times can be challenging. If you're unsure whether to adjust your board-designated assets or need help crafting a policy, consider reaching out to a nonprofit financial advisor or auditor for guidance.
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Bob has considerable expertise in auditing and accounting of exempt organizations, specifically educational institutions, arts and entertainment organizations, and other nonprofit organizations, as well as employee benefit plans, auto dealerships, and other commercial entities, where he manages and oversees the all services to these organizations. Additionally, he has significant experience in grant compliance, audits in accordance with Government Auditing Standards and the Uniform Guidance, financial reporting, and taxation of exempt organizations. Bob is a member of the Firm’s Accounting and Auditing Technical Committee and is the chairperson of the Financial Accounting Standards Board Subcommittee. He was named partner in 2024.